Should Cryptocurrency Be Capitalized, What is cryptocurrency market capitalization, What does crypto market capitalization mean for investors, How to use weighted market cap strategy for crypto
You must have heard about market capitalization in the stock market investment. Market capitalization is an essential aspect for stock market investors. But the concept is quite different when it comes to crypto investment. There is no uniform contention for cryptocurrency capitalization.
Stock market capitalization means total value or the number of shares of stock of the company. It helps the investors to create and maintain a balanced investment portfolio. According to the experts, the rules are different and also not applicable to the crypto investors.
What is cryptocurrency market capitalization
Cryptocurrency market capitalization means the total value of cryptocurrency circulated in the market. The stock market capitalization is computed by multiplying the share outstanding by the share price. The concept is quite different from cryptocurrency market capitalization which is calculated by multiplying the number of coins circulated by the price of the cryptocurrency.
Consider an example of the market capitalization of Bitcoin, which is calculated by multiplying the coins in existence by the price of Bitcoin at a specific time. The price of Bitcoin has been decreasing regularly since March 2022. With the change in the price of Bitcoin, the market capitalization also changes.
In the past few months, the price of Bitcoin has been around
- $45,000 x 18.8 million = $846 billion
- $50,000 x 18.8 million = $940 billion
- $55,000 x 18.8 million = $1.034 trillion
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What does crypto market capitalization mean for investors
The market capitalization in the stock market is categorized as small cap, mid cap, or large cap. An investor can decide to segregate their investment into numerous groups for several reasons which makes it essential to be aware of the market cap. Market cap is often utilized to refer to how much the organization is worth and this can be reflected in the intensity of riskiness it has to invest in the company. Large-cap stocks are risky compared to midcap and small-cap stocks.
The concept of cryptocurrency is not as old as the stock market. This means the formation of categorization like large cap or midcap is difficult.
Experts also state that investors must stick to Bitcoin or Ethereum, and the total investment in the crypto portfolio should not be more than 5%. This means the requirement of market cap to determine the investment decision is less.
Knowing the cryptocurrency market cap can be interesting if one desires to know the potential or scope of a specific token but it should not be a big factor in the investment decision.
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How to use weighted market cap strategy for crypto
A weighted market cap strategy can assist the investors even if there are few of the people investing in Bitcoin and ethereum. Weighted market cap strategy means to allocate proportional investment in every asset on the basis of their market cap.
For example, if an investiture take the total market capitalization of both Bitcoin and ethereum than there is a need to divide the percentage of every individual crypto holds in the total which will result in 71% in Bitcoin and 29% in ethereum.
The same approach is applicable to determine the investment made in two biggest cryptocurrencies. For example, $100 should be invested as $71 in Bitcoin and $29 in Ethereum.
According to experts, the investors should be concerned about the important cryptos like Bitcoin, Ethereum, etc, and not the other altcoins. The objective is to put large amount in safer cryptos and small amount in risky cryptos.
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Frequently asked questions
1. Is cryptocurrency capitalized?
Yes, cryptocurrency is capitalized
2. What is Dogecoin capitalization?
3. Is crypto a capital gain or income?
Crypto is a capital gain.
4. Is crypto an asset or money?
Crypto is a digital asset
Disclaimer: If you want to invest in the stock market, you should consult your financial advisor before making a buying decision. You should assess the risk and study the company details.
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